You may have heard or read of a brokerage account. But do you exactly know what it is? Basically, this is a type of financial account that can be opened with an investment company like broker firms. However, just before you open with one, it is wise to take time reading broker reviews to ensure that you’re with the right team.
Unlike the traditional bank accounts, brokerage accounts are offering access to diverse investment channels similar to the following:
- Stocks and;
- Mutual funds
In addition to that, brokerage accounts are sometimes referred to as taxable accounts because the investment income within such account is being taxed as capital gains.
How do these Accounts Work?
Basically, you can find various licensed brokerage firms today. Some of these companies may have a hefty price for their service while some have budget-friendly packages.
Most of the brokers let you to create a brokerage account over the web and you don’t need bundles of money in doing so. The truth is, many of the brokerage firms let you to open your account even without initial deposit. On the other hand, you’ll have to fund the account prior to making any purchase of investment.
Fortunately, this can be done easily by transferring money from your savings or checking account or even from a different brokerage account that you have.
In your brokerage account, it is you who has control over your investments and money. You can sell your investments as well at any given time you want. The broker will be managing your account and will act as the intermediary between you as well as the investment that you want to buy. Here, it will be your budget that will set the number of brokerage accounts to have or how much to deposit in each account. Just remember this, there must be no fee in opening a brokerage account.
Difference between a Retirement and Brokerage Account
A standard taxable or brokerage account provides no edge when it comes to investing through the account. Most of the time, the earnings of your investment would be taxed. On the other hand, this also means that there are fewer rules for such accounts. You can pull out your money at any given time and for whatever reason you like and even invest as much as you wish.
Now, if you are shooting for investment for your retirement, then you have to open a retirement account. This is a tax-advantage investment account that is designed specifically for retirement savings. For this reason, there are restrictions placed in these accounts on how and when you could withdraw the money and on how much you can or should contribute per year.